Agricultural Sciences, 2016, 7, 55-69

Published Online February 2016 in SciRes. http://www.scirp.org/journal/as

http://dx.doi.org/10.4236/as.2016.72006

Palm Oil Production in Malaysia:

An Analytical Systems Model for
Balancing Economic Prosperity,
Forest Conservation and Social Welfare
Nickson E. Otieno1,2, Xeuping Dai2, Daniele De Barba2, Abbassi Bahman2, Elise Smedbol2,
Marouan Rajeb2, Lise Jaton2
1
National Museums of Kenya, Nairobi, Kenya
2
University of Quebec Trois Rivires, Qubec, Canada

Received 2 January 2016; accepted 14 February 2016; published 17 February 2016

Copyright 2016 by authors and Scientific Research Publishing Inc.

This work is licensed under the Creative Commons Attribution International License (CC BY).
http://creativecommons.org/licenses/by/4.0/

Abstract
Since the late 1950s, the Malaysian human population has nearly quadrupled, increasing pressure
on natural resource exploitation to meet domestic needs and to earn foreign exchange from ex-
ports. Global demand for Malaysian palm oil in particular had steeply increased since the mid-
1970s and by 2013, the commodity was the leading foreign exchange earner. To fulfill and sustain
this demand, the countrys economy has steadily shifted bias towards production and associated
value addition of palm oil products for export. However, as a consequence, many of Malaysias
natural tropical forests have been converted to palm oil farming resulting in loss of approximately
10,000 km of forest cover over the past twenty-five years, and biodiversity has been displaced or
lost. To provide a deeper insight into the interplay amongst key interrelated environmental and
socio-economic variables, and a forecast of possible future balance, we used a systems dynamism
modeling tool, STELLAR (structural thinking, experiential learning laboratory with animation), to
simulate and project how Malaysia could achieve a medium-term sustainable balance or optimiza-
tion between palm oil production and forest conservation without compromising on human social
welfare. The model consisted of four main modules (environmental, economic, social development
and human welfare) each with component parameters, and interconnected by input and output
loops. Model calibrations, testing and pre-runs involved existing official 30-year time-series data-
sets. Subsequently, four scenarios: Environmental conservation; Economic growth under in-
creased global palm oil demand; Economy decline under decreased palm oil demand; and Control
condition with little or no change, were selected for simulated projections of future possibilities.
Simulation results showed that scenarios and variable interactions that reduce environmental

How to cite this paper: Otieno, N.E., Dai, X.P., De Barba, D., Bahman, A., Smedbol, E., Rajeb, M. and Jaton, L. (2016) Palm
Oil Production in Malaysia: An Analytical Systems Model for Balancing Economic Prosperity, Forest Conservation and Social
Welfare. Agricultural Sciences, 7, 55-69. http://dx.doi.org/10.4236/as.2016.72006
N. E. Otieno et al.

damage would offer the best chance for optimizing the palm oil economy while also minimizing
forest loss and promoting citizen social welfare.

Keywords
Palm Oil, Systems Modeling, Sustainable Development, Conservation, Malaysia

1. Introduction
Malaysia, a South-Eastern Asian country located near the equator, comprises two roughly equal regions: the Pe-
ninsular Malaysia and Malaysian Borneo. The multi-ethnic population is governed by a monarchical system. In
the last 50 years, the Malaysian economy experienced strong growth, rising from USD 8.2 million in 1960 to USD
29.8 million in 2014 [1]. Despite this growth in national wealth, the majority of the population is poor and the
economy relies heavily on the agricultural sector which accounts for three-quarters of household incomes [2]. In
the 1970s, one fundamental objective of Malaysian Governments Economic Policy was to eradicate poverty by
raising income levels and increasing employment opportunities [2]. Palm oil production which is currently the
most significant agricultural export for the country, represents an important commodity that may be used as a
vehicle for rural poverty eradication [3], particularly I light of the prevailing ideal climatic and edaphic conditions
for its cultivation [4].
Malaysian palm oil exploitation began in 1917 [5], but had steeply grown since 1961 when the Federal Land
Development Authority (FELDA) allocated 375 hectares specifically for the crop [6]. At the same time, the
government encouraged a policy that replaced rubber oil fields by palm oil plantations in rehabilitated or newly
opened area [3] with the dual aim of diversifying agricultural development and also enhancing the commerciali-
zation of the sector [5]. The Malaysian Palm Oil Council (MPOC) also developed strategies to place Malaysia as
an international leader in the vegetable oils and fat market through promotional activities. Consequently, Malay-
sia became the worlds leading exporter of palm oil until 1997 when it was surpassed by Indonesia in 2007 [6]
(see Table 1).

Table 1. The worlds 25 leading palm oil exporting countries. Estimates are for 2014 and in 1000 metric tonnes.

Rank Country Export volume (metric tonned)

1 Indonesia 22,500
2 Malaysia 17,200
3 Papua New Guinea 640
4 Benin 450
5 Guatemala 405
6 Thailand 400
7 Honduras 300

8 Cte Divoire 260

9 Colombia 260

10 United Arab Emirates 250

11 Ecuador 240

12 Costa Rica 160

13 EU-27 160

14 Egypt 150

15 Singapore 100

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Palm oil is a steady source of affordable edible and non-edible oils, bio-composites, nutritional and other
pharmaceutical products. About 80% of palm oil products are edible while 20% are for non-edible use such as
chemical manufacturing [5]. For instance, currently, palm oil accounts for about 5% of the worlds bio-diesel
production [4].
Production of palm oil has increased significantly due to increasing global demand with major importers be-
ing India, China and the European Union [4]. Since 1990, the global consumption had quadrupled [6] and, ac-
cording to Corley (2009) [7], the demand for edible vegetable oils was expected to double from present con-
sumption by 2050. Assuming that all projected expansion of land under palm oil production is realized in major
producing counties, the area under harvest could increase by 140% from 2007 to 2050 [8]. This increase could
be greater with the anticipated development of the palm oil industry as a major source of global biofuels [4]. The
phenomenal growth in global production and demand for palm oil is attributable to three factors: the relatively
lower cost of production compared to other major cash crops; the health benefits of edible vegetable oils rather
than alternatives from animal products; and the wide variety, uses, versatility and applications of palm oil prod-
ucts and derivatives, ranging from domestic, industrial, medical and agricultural [9].

Research Problem
Although increase in palm oil exploitation brings many obvious economic advantages, the industry is also faced
with a number or challenges and controversies. For instance it accounts for about 8% of total Malaysian GDP [10].
However, while at the social level, an increase in production earnings should ideally translate to general reduction
of poverty levels amongst the Malaysian population contribute to alleviation of poverty levels, the converse is in
fact apparent [11] [12]. There are also concerns about the industrys impact on the environment as it is now es-
timated that the palm oil cultivation was responsible for loss of an estimated 1.1 million ha of the countrys
tropical rainforest cover between 1990 and 2005 alone [13]. Conversion of forest and other land use forms to palm
oil production is further associated with pollution of water bodies (through application of fertilizers, insecticides
and herbicides) as well as biodiversity loss [14]. In addition, although biofuel derived from palm oil can be used as
an environmentally clean substitute to fossil fuel, there are large greenhouse gas emissions associated with the
processing of such biofuels. It is estimated that converting rainforest into palm tree plantation to replace fossil fuel
would result into emission of at least as much CO2 as the burning of fossil fuels [15].
The goal of this dynamic model project was to determine how Malaysia could strike a sustainable balance
between palm oil production, rainforest conservation and promotion of social well-being. To achieve this, we
employed a simulated interaction amongst a number of variables interacting over a period of 10 years in specific
time steps, within the three main module themes: Social, Economics and Environment. The social welfare is
used as a juxta-positional variable for conjoining as well as gauging the interactions of the modules.

2. Methods
2.1. Study Area
Malaysia is a south-east Asian country with approximately 330,000 km2 of land cover and 1190 km2 and lies
between 02-30N and 112-30E. The elevation ranges from 0 to 4100 m above sea level. The country is cha-
racterised by a tropical humid climate with diurnal temperatures up to around 24C - 28C year-round and min-
imum night-time temperatures averaging 20C. The 2015 human population estimate is 30,866,000 with an
overall density of 92 per 5 sons/km2 70% of the population living in urban areas. Malaysia has a Total Gross
Domestic Product estimated at US$ 800 billion with a capita income of US$ 25,833. Although as an emerging
economy, Malaysias economy is becoming rapidly industrial, the country still depends heavily on agricultural
commodity exports with palm oil the main agricultural foreign exchange earner. This is due to a steady rise in
global demand for palm oil as substitute for classical animal and other saturated oils in an increasingly health-
conscious world. Malaysia has a result emerged as the leading exporters of palm oil in the world, with large tracks
of natural tropical forest being increasingly converted to palm oil fields. Malaysia is also considerably rich in
biodiversity due a largely favourable but diverse tropical climate that supports high diversity and endemism of
flora and fauna. It therefore hosts several species of mammals including tiger and primates as well as birds, rep-
tiles, amphibians, plants and aquatic resources. Conversion of natural forest to farmland, coupled with illegal
hunting has been exerting increasing pressure on wild forest species, particularly the tiger and primates. Although

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palm oil farming is highly developed in terms of mechanization and systematization, majority of workers are still
low-skill, low-income people. Intensification of these farms, together with heavy input of agro-chemicals pose
additional challenges to environmental conservation and therefore sustainable agriculture.
The modeling was performed in Stella Modeling software (version 10.0.3, ISEE Systems, Inc.). The various
selected parameters and variables were framed within three main modules (environment; economy; social de-
velopment) and interactions tested within specific spatial and temporal framework scales. Subsequently, interac-
tivity amongst all variables was tested across the three modules for overall responses. Testing and calibration
was done using existing published data and official metric and related reports produced by the Government of
Malaysias Department of Agriculture. Finally, modeling and projections were achieved through simulations of
parameters, underpinned within four scenarios: environmental conservation; increased palm oil demand; de-
creased palm oil demand and; control. The whole models conceptual structure is outlined in Figure 1.

2.2. Calibration, Temporal and Spatial Scales

With the aim of representing the national dynamics of the palm oil exploitation, the model considered Malaysia as
a whole as the spatial scale for all variables with the exception of the human population which was the only one
distinguished as either rural or urban. A scale of a month was chosen, rather than one year, so as to provide a finer
temporal scale. The model calibration was made using data from official government records, the bulk of which
was freely available online, as well as from several United Nations and other international or regional agencies
involved with research or projects on trade, development, environmental protection or social welfare [16]-[19].
This base time for calibration was January 1985 and the end in December 2014. Most of the model is built with
quantitative data, but the social and the welfare modules attempt to also incorporate qualitative data.

2.3. Model Structure

2.3.1. The Environmental Module
1) Land use
The land use module focuses on land use changes. Three categories of land use were considered: 1) forest
land; 2) palm tree plantations; 3) other agricultural land. Their respective datasets were found from FAO Data
[20] and the Malaysian Department of Statistics [21]. Land cover may switch from one category to another de-
pending on the parameters of the global model. Palm oil plantations were divided into 4 crop stage classes

Figure 1. Global model structure showing the three main modules: Environment, Economy
and Social development or welfare. Welfare is at the interface of these three modules.
Stocks in bold face were expected to show greatest influence in the whole model dynamic.

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corresponding to the annual productivity values of the 4 fresh fruit bunches (FFB) [22]. These productivity values
were converted to monthly portions for ease in incorporation into the models temporal component of monthly
steps. The total productivity was obtained by summing up the productivity of each crop-stage class, FFB prod-
uctivity was then converted into crude palm oil production (CPO) by using a CPO yield of 21% of FFB production
[22]. After 30 years, the palm trees are usually cut and new palm trees are planted.
The main drivers of land use change appeared to be the human population and the palm oil market price, based
on the predictive model: PoTC = * PM + PH, where PoTC is total palm tree plantation cover; PM is market price;
and PH is human population (R2 = 0.99, p = 0.043). As a way of calibrating the model for this particular module,
the coherence of the model was tested against actual observation (existing datasets) by for instance randomly and
progressively increasing plantation cover with values between 5000 and 20,000 ha and reducing it gradually with
values between 60,000 to 5000 ha. Land allocated to new palm tree plantations constituted 40% of total land al-
located by Malaysia to all crop-based agriculture and is also equivalent to 60% of forest total natural forest cover.
However, as a deliberate rule, when palm oil market price fell to less than US$100, the model assumed that the
plantations were abandoned. This is because existing datasets showed that this price was the lowest average during
the period in consideration.
2) Biodiversity
The biodiversity paramere focused on the population dynamics of tigers and orang-utans, because the survival
of these two iconic and endangered species is intimately linked to the preservation of forests [23] [24]. The dy-
namics of each population is based on the forests capacity to support species food, dispersal and reproductive
needs as well as resilience against poaching pressure parameters. The survival of each species depends on a large
enough territory and a sufficient amount of food within this range, specifically other mammals and fruit trees,
respectively [16] [25]. The quantities of each type of food together with the size of the territory available were
directly calculated from forest cover. At each time step, the maximum number of individuals that the environment
could support was estimated by the model. During periods when forests are not under stress for the requirements
of resident animal/biodiversity populations, the animals reproduction rates increased while mortality decreased,
and vice versa. In addition to natural death, the poaching parameter puts anthropogenic pressure on both species.
Poaching was negatively correlated to the Malaysian economic performance since subsistence or commercial
poaching was consequence of reduced gross domestic product per capita (GDP) during economic depression pe-
riods, and forest-neighbourhood communities resort to poaching for alternative sustenance.
3) Pesticides and fertilizers
Total pesticides and fertilizers applied are calculated using on empirical equations with actual datasets from
annual statistics of the Malaysian Government [16]. These two parameters, that were essentially environmental
pollutants due to their inorganic nature, were directly linked to the environmental quality index in the welfare
module, i.e. their long-term use reduces environmental quality. Further, GDP in the economics section directly
linked to total volumes of pesticides and fertilizers applied, such that increases in the GDP in economic boom
periods indirectly enabled farmers to apply more fertilizers and pesticides, perhaps even more chemically potent
ones, further degrading the environment. This degradation was calculated overall based on the Randers ap-
proximation model of decomposition, photodecomposition and biological metabolism [26]. The complex
process is represented by an exponential decay with the half-life degradation in soil. According to Rander,
DDTs half-life for instance can range from 3 years to 30 years. However, in adapting this for purposes of the
model, our overall average for a combined ranges for pesticides and fertilizers, however, were three and one
month, respectively [16].
4) Land carrying capacity
The aim of this parameter was to evaluate the human carrying capacity, defined as the number of individuals
that the local resources can support, in particular, considering food supply (average total kilocalories per indi-
vidual) [27]. The availability of food is influenced mainly by two factors, namely total non-palm oil consumptive
crop-based agricultural as well as livestock production, including fishing and other aquaculture, all considered
only at the national level (excluding international inflows or outflows). These fundamentally depend on total land
area devoted to agricultural activities. This land area is represented by the Other Agricultural Cover within the
Land-use sub-component of the Environmental Module (Figure 2). Based on the existing official datasets [16]
[28], it was possible to identify the average breakdown of the various types of farming (permanent crops; arable
lands; etc.) and livestock (cattle, sheep, poultry, pig, fish, etc.). Additionally, using the average values of yield per
hectare of agricultural products and the feed conversion ratio (a measure of an animals efficiency in converting feed

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Figure 2. Relative final parameter values for each scenarios within the Social module.

mass into increases of the desired output [29], it was possible to connect hectares of land under agricultural
production to food production for human population and animals. Finally, the rate of consumption of animal feeds
and human food was also linked to the quantity of waste produced and recycling or other application of these. This
is itself influenced by literacy levels of the population, represented as an alphabetization index within the Welfare
module.

2.3.2. The Economics Module

1) Palm oil market price
The Market price was taken to be the price at which the palm oil is sold on the global market. This value, al-
ternatively called global price, has a huge impact on the management decision: if the price is high, more palm oil
tree will be planted and vice versa. It involves the world demand, which we fixed in our model for testing the
various scenarios. To calculate the demand, we took in consideration the price elasticity of demand, which
represents the percentage change in quantity demanded in response to a unit change in its price [30] [31]. In the
model, the palm oil market price was directly interacted with total palm oil production taken from the environ-
mental module.
2) Alternative capital
This portion of the Economics Module represented the proportion of agricultural production which constitutes
the alternative source of export in the absence of palm oil farming [32]. In the model, the Alternative Capital stock
was connected to a bi-flow, which corresponded to alternative agricultural production segments (agricultural al-
ternatives to palm oil). This was derived from total agricultural products, excluding palm oil, multiplied by the
average price per tonne, resulting in total alternative agricultural earnings. This input, therefore, changes de-
pending on the Market Price of palm oil. When palm oil price reduces, total alternative agricultural production
investment increases [33], leading to a corresponding increase in alternative capital. Thus, alternative capital and
palm oil price should be inversely proportional. When the palm oil price changes in terms of percentage, it induces
a change in alternative agriculture products [34] [35]. The key outflow from the alternative agricultural earnings is
the Sales Tax charged by the government before export [36]. Externally, this parameter is connected to the Market
Price and the GDP parameters.
3) Gross Domestic Product
In general, Gross Domestic Product is the monetary measure of total final goods and services produced in a
country for one a year, or any other time period. In this case we considered the Nominal GDP, that is, excluding
production that flowed into Malaysia emanating from other countries, except from export earnings from goods and

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services produced in Malaysia. In the case of the present model, it was considered monthly, and measured in US
dollars. The inputs for this parameter were the oil exports from the Oil potential and the alternative agricultural
earning coming from the Alternative capital. GDP per capita was obtained by weighting GDP on the total human
population, which was part of the Social module, all of which were also sourced from Perspective Monde [17].
While GDP was used as per capita in the Social module, it was used as GDP stand-alone input in the Environment
module. Overall, GDP is the best definer for the state of the economy, throughout the present modeling and si-
mulations.
4) Economic potential
Economic potential represents the total revenues earned from palm oil in Malaysia both from domestic and from
export markets. It therefore contributes to the overall GDP but apart from this also spurs Investment in other
agricultural or non-agricultural ventures domestically, and support or accounts for the palm oil Workforce in-
flows/outflows. The workforce here may be divided into two components: 1) workers in palm oil industry alone; 2)
total number of workers nationally.

2.3.3. The Social Module

1) Tradition and network relations
The aim of this parameter was to account for impact of palm oil production on the social structures of the
Malaysian communities [12]. The social capital was constructed as the sum of two stocks: 1) agriculturally related
traditions such as land rights and perception of agricultural practices; and 2) social linkages. These stocks are
interconnected: a group with strong social links is more able to establish shared traditional values [11]. We made a
distinction between urban and rural population for two reasons. The first is the assumption that the rural popula-
tion would be economically directly impacted by palm oil production and deforestation [37]. The second is the gap
between the rural population and urban population in terms of traditions, culture and economic situation in Ma-
laysia [38]. This traditions and networks module had some interactions in the model, with some inputs from some
parameters within the Environmental, Welfare and Economics modules. The final output from the Social module
was Social capital which, was fed into the Welfare module.
The social network parameter was assumed to be positively influenced by such social interaction issues as
family structure, the media and internet. This is because family structure is the bridge between individuals and
society. It is also the tool used for transmission of traditions, values and knowledge. Media and the internet not
only contribute to maintenance of linkages between members of a community or across communities but also is
are a source of new ideas, and play increasing crucial roles in Malaysia just as in all counties of the world [39].
For instance, new knowledge, skills and ideas acquired either form schools, the media or internet, coupled with
economic challenges in rural areas can trigger migration to urban areas, in the process, not only breaking family
units but possibly also changing attitudes to farming methods and traditional values.
2) Human population
In this paramere the whole population of Malaysia was divided into 5 age groups: 0 to 14, 15 to 17, 18 to 45, 46
to 64 and 65 years or more, since these age-groups play different roles in Malaysian society. Each group was
further divided into urban and rural components. The initial value of each age group was given by an estimation
based on World Bank Group statistics (35). We standardized the birth and death rates for all population compo-
nents, for simplicity in calculations and model testing. The only inflow was birth, itself related GDP per capita
from the Economics module, as well as the human carrying capacity in the Carrying capacity sub-component of
Environmental module. We disregarded emigration and immigration here, because according to the data from the
World Bank Group [40], its influence on the total population of Malaysia was not significant over the period under
consideration.

2.3.4. The Human Welfare Module

The aim of this module was to assess effects of the palm oil production on the welfare of the Malaysian population,
considering two different population categories, urban and rural. It was estimated by integrating four different
indices: environmental quality, health standards, standard of life, and overall life satisfaction. Each of these in-
dexes aggregated many indicators with thresholds used to qualify quantitative data, which was expressed on an
appreciation scale from 1 to 5 (worst) where 1 (best). The indicators were standardized in order to give greater
weight to those having stronger linkage with the palm oil production. The weighting went from 1 (weakest) to 3
(strongest linkage). The inputs into this module came from the environmental module (forest cover, iconic wildlife

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species and fertilizers and pesticides in soil), the economics module (total cover of palm oil, monthly production
and GDP per capita), the social module (social capital and total population), and human carrying capacity para-
meter. The other indices and thresholds were built following IAURIF [41] and UNDP [42] data sets about human
development, as well as additional data from the IMF [43] and WWF [44]. Simultaneous to these indicators,
another index was built (local palm oil index) which included only indicators related to the palm oil production in
order to increase the sensitivity of the global model towards the palm oil production fluctuations.

2.4. Modeling Projected Scenarios

While the model was calibrated and tested with data obtain for a period of 30 years from January 1985 to De-
cember 2015, the projections simulations were for the ten year period from 2014 to 2024. Simulation projections
revolved around four main scenarios: a Control; Environmental Improvement; Economic Growth; and Economic
Decline. In the first scenario, Control, trends follow initial calibration with no changes in any parameters in any
way. In the Environmental scenario, we biased the focus on forest cover size and biodiversity protection both of
which should benefit from decreased use of pesticides and fertilizers as well as lower generation of waste. The
economic growth scenario (Economy (+)) hinged by an increased world demand for palm oil spurring an in-
creased effort in palm oil production. The final scenario, economic decline (Economy ()), was associated to the
contrary i.e. a steep decrease in global demand for palm oil resulting in lower palm oil cultivation or production
(Table 2).

3. Results
For each module and for each scenario the modeling simulation was able to expose how various parameters
evolved as well as the final states of the component modules and parameters at end of the projection period for
each scenario. For each simulation results (Figures 2-5), relative final parameter values correspond to percen-
tage of the maximum value reached for each parameter in the four scenarios. The highest value reached by each
parameter during the 4 scenarios is set at 100%.

Table 2. Results of model simulation run showing parameter values reflecting projections under each of the four scenarios.
Note: POP = Palm Oil Production; GDP/C = GDP per capita.

Parameter Control Environmental protection Economic growth Economic decline

Farm workers/ha 3.5 3.5 2 3.5

Other agriculture conversion to POP 0.4 1 0.4 0.4

Forest conversion rate to POP 0.6 0 0.6 0.6

If high GDP/C If high GDP/C If high DP/C
THEN 2; If low THEN 2; If low THEN 2; If low
Tiger poaching pressure 1
GDP/CTHEN 7; GDP/C THEN 7; GDP/C THEN 7;
Else 5 Else 5 Else 5
If high GDP/C If high GDP/C If GDP/high
THEN 30; If low THEN 30; If low THEN 30; If low
Orangutans poaching pressure 20
GDP/C THEN GDP/C THEN GDP/C THEN 50;
50; Else 40 50; Else 40 Else 40
Total pesticides applied (tonnes/ha) 1 0.1 2 0.5
Total fertilizers applied (tonnes/ha) 1 0.1 2 0.5
Rural: 4.7 * 104 Rural: 4.2 * 104 Rural: 4.3 * 104 Rural: 4.95 * 104
Human death rate
Urban: 4.5 * 104 Urban: 4.0 * 104 Urban: 4.2 * 104 Urban: 4.85 * 104
Production rate Fixed value Fixed value Increase 0.1% Decrease 0.1%
Feed conversion Rate Fixed value Fixed value Decrease 0.3% Increase 0.3%
Fishing Fixed value Fixed value Increase 0.2% Decrease 0.2%
Waste generation rate 0.3 0.1 0.3 0.3

World demand (metric tonnes) 300,000 300,000 600,000 100,000

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Figure 3. Relative final parameter values for the different scenarios within the Environmental module. CPO = overall palm
oil production.

Figure 4. Relative final parameter values for the different scenarios within the Economics module. The Global Price com-
ponent is decomposed into economic market price and the global demand while Workforce into workers in palm oil industry
and total number of workers nationally.

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Figure 5. Relative final parameter values for the different scenarios within the welfare module.

3.1. The Social Module

The total human population increases in all scenarios, with the increase remarkably identical similar for the
Control and the Environmental conservation scenarios. However, the population increases more rapidly in the
Economic growth (Economy (+) than in the Economic decline (Economy () scenario (Figure 2)). Social network
and traditions display exactly the same trends regardless of the scenarios. Tradition in urban and rural communi-
ties together with the social network in urban population increases regularly and also presents identical values
while the social network of rural population is rather constant. Except for total human population, indicators in
social module generally do not differ regardless of scenario. The deviation in population between Economic ()
and Economy (+) at the end of the simulation is considerable, standing at 2.2 million people.

3.2. The Environment Module

The quantities of fertilizers and pesticides in soils show discrepancies between scenarios. For instance pollutants
are highest in Economy (+) followed by Control then Economy (). The Environmental conservation scenario
corresponds to the most significant decrease in pollutants. However, forest cover and abundance of iconic spe-
cies (tigers and orangutans) appeared to decrease in all scenarios, with Environmental conservation scenario be-
ing the only one capable of decelerating this decrease in forest cover and biodiversity loss. Palm oil production
presents the same increasing trends in the different scenarios, showing its resilience as well as the nations
strong dependence on it for future development aspiration both at the at the domestic as well as international
level. Carrying capacity shows contrasting evolutions: while it is roughly unaffected by or shows no response
under Control and Environmental conservation scenarios, it suddenly increases under improved economic per-
formance (Economy (+)) but decreases sharply and linearly under economic decline or Economy (), suggesting
it may be deliberately increased to spur economic growth.
Environmental conservation scenario is the best option for reducing environmental pollutants, the preservation
of important biodiversity (iconic species) and the maintenance of forest cover (Figure 3). The three other scena-
rios increase pollution levels and decrease the number of iconic species. The Economy (+) scenario is the most
significantly associated to increased use and application of fertilizers and pesticides and the Control scenario is
related to the high rates of forest loss as is Economy (+). Only Economy () shows reduced pressure on less of
forest cover. The final value for palm oil production is similar regardless of the scenarios, again demonstrating

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palm oils overall significance in Malaysia now and in the future. Carrying capacity shows a deviation of 46 million
inhabitants between the two Economic scenarios, with Economy (+) supporting the most inhabitants. The two
other scenarios are almost the same and intermediary (see Figure 3).

3.3. The Economics Module

Palm oil market price shows a clear variation through the different scenarios. It increases in the Economy (+)
scenario but understandably decreases in the other three, the most rapid decrease being observed for the Econo-
my () scenario. On the other hand, global demand for palm oil shows composite and heterogeneous responses,
with slow increases in Control and Environmental conservation scenario, sharper increases under a favourable
economy (Economy +) but decrease when the economy slumps under Economy () (see Figure 4).
The number of workers needed to work palm oil farms declines only in the Environmental conservation sce-
nario but remains constant under all other scenarios (Figure 4). However, the total number of people employed
increases linearly in all scenarios but at a much slower rate, and is in fact lowest under the Environmental con-
servation scenario. For palm oil economic potential, three types of behaviors are observed: a constant trend
through lower value for the environmental conservation and control scenarios, a rapid increase under Economy
(+) and a decrease under Economy (). Alternative capital increases under Economy (), Control and Environ-
mental conservation scenario but is slightly lower under Economy (+). As Figure 4 shows, all parameters reach
their highest final values in the Economics (+) scenario with only the alternative capital attaining nearly the
same final value in all four scenarios.
The palm oil market price differs by up to 182 USD/ton between the two economics scenarios, and the final
price values in the Environmental conservation and Control scenarios are generally similar. Under control sce-
narios, the highest parameters are numbers of workers in palm oil farming and the total number of employees in
the entire palm oil sector.

3.4. The Welfare Module

Despite the usually higher incomes for urban dwellers, the overall life satisfaction of urban and rural communi-
ties appears to be nearly comparable, under both favourable and unfavourable economic scenario (Economy +
and Economy ). This is presumably due to socio-economic challenges in urban settings, including loss of tradi-
tion values and social units, as compared to the rural areas. However, both rural and urban welfare indices per-
form slightly worse under Economy + than under Economy () scenarios. The local palm oil index increases in
all scenarios but reaches the highest value under Economy (+) scenario, followed the Control and Economics ()
but is lowest under the Environmental conservation scenario, showing that environmental health is significantly
compromised when emphasis is laid on maximizing palm oil production. By contrast, life is most satisfactory in
both rural and urban settings when environment is most preserved (Figure 5).

4. Discussion
4.1. Main Observation from the Projected Scenario
Results of model simulations for future projections indicated that within the social realm, social systems amongst
Malaysias citizens, such as networks and traditions thrive best in the rural areas regardless of any scenario. On the
other hand, in urban areas, social systems are tend to be sustainable only under relatively low economic perfor-
mance but are otherwise irrelevant under any other scenario. Further, under a depressed economy scenario, total
human population size reduces, possibly due to increased mortality, especially since the population rises consi-
derably under economic prosperity scenarios. Impact of economic performance on population size is so profound
that there occurs a 2.2 million difference between favourable and unfavourable economic performance.
Within the economics module, a scenario of positive economic is consistent with high global demand for palm
oil and higher market price which actually implies that attractive sales prices lead to increased export volumes that
benefit the economy from foreign exchange earnings. This also ultimately spurs investment in palm oil production
thereby boosting the palm oil sectors contribution to the economy (Figure 4). Under such high volumes of export
of palm oil, employment opportunities are also created, both in palm oil sector and at the overall national level,
re-affirming the commoditys significance (palm oil potential) in Malaysias current and future economic per-
formance (Figure 4).

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However, increased numbers of workers due to better economic growth, particularly from palm oil sector
revenues, is associable to environmental degradation and loss of biodiversity as natural forest cover shrinks due to
clearance to create more palm oil fields to absorb the labour force and to create increased carrying capacity to
settle more people. Such a process also exposes wildlife to increased poaching rates. Application of agrochemicals,
including inorganic fertilizers, appeared to be the most serious driver of environmental degradation, whether the
economy has positive, negative growth or remains unchanged. These are presumably variables that have either
direct negative effects on soil health but also act as indirect confounding variables through increased total agro-
chemicals applied due to more newly-cleared forests, and more workers employed in the sector. Therefore, al-
though palm oil production index appears maximal under a growing economy, unmitigated exploitation of the
land for palm oil export would result into considerable environmental degradation in the long run.
Economic performance and environmental conservation showed further variant implications for overall social
welfare of the Malaysian citizenry. For instance overall satisfaction, rural or urban appears unchanged whether the
economy should do well or poorly. This may due to the fact that GPD, the main definer of economic performance
in this model, was calculated per capita, regardless of these two population segments. On the other hand, only rural
dwellers appear to benefit from social satisfaction as a result of or under a well conserved environment scenario.
This may be a result of reduced infections or pollution, enjoyment of benefits of biodiversity including outdoor
recreation, and even revenues from nature-based tourism which may boost rural incomes but make insignificant
impact on urban dwellers.
In all, environmental conservation and care presents the best future prospect for sustainable palm oil economy
in Malaysia since only in such a scenario can there be an optimal balance between palm oil production, favourable
economic growth as well as better preservation of biodiversity and increased overall social welfare under a modest
human population growth regime

4.2. General Evaluation of the Models Performance

The model performed quite well in overall, with outputs consistent with expectations from the inputs within the
three main modules. Not only were there numerous variables with complex interactions amongst them but also
various patterns of linkages between the modules. In spite of its complexity, the graphical outputs of the model
successfully portrayed the underlying equations linking its various simulatively interactive parts in a responsive
way. The model was also sensitive to scenario changes (control; favourable environmental conservation policy;
economic growth; economic decline), especially when key variables that significantly influenced interactions
were modified. Thus it was easy to observe that forest cover, palm oil market price and perhaps total population of
Malaysia, are the greatest drivers of palm oil production focus, in conjunction with world demand.
Sensitivity was largely localized rather than global/total, such that only a few parts or variables (such as market
price mentioned above) are responsible for its outcomes under various scenarios. Most of the other variables are
largely latent and do not trigger any significant overall outcomes even if the values are modified. Examples are
population birth rates, biodiversity, environmental pollution or labour force. This apparent limitation in interactive
sensitivity may, in part, be due to connections between variables that have little actual effects on each other. It
could also be a lack of adequate information about how the different variable elements interact in the Malaysian
palm oil production system. For instance, it is possible that when analysed on a monthly basis, birth rate is not
effectively additive to GDP, or monthly loss of species is less connected to standard of living that is usually
evaluated in time steps longer than one, at times even 5 years. This makes the model divert away from possible
intuitive expectations in reality. Moreover, apart from the world demand for palm oil, modules are only influenced
by factors within Malaysia while in reality there are many other international variables, such as climatic or re-
gional weather hazards, or political changes that might affect palm oil production systems, policies and trends [45].
Changing values of parameters within parameters rather than making true dynamic links in scenario building
further undermined the overall performance of the model and made it vulnerable to total loss in case of system
failure (crash). In spite of all these, the model performed well enough to actualize the general linkages amongst
key sets of variables selected as envisaged. It also provided a remarkably effective and fairly actionable decision
tool for understanding the interactions amongst environmental, economic and social aspects in Malaysia with
regard to future forecast in palm oil production. The results therefore offer an important technical background for
policy pro-action towards pursuit of an effective balance between agricultural productivity and environmental
conservation for sustainable development in emerging and other developing economies such as Malaysia.

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4.3. Conceptual Limits and Assumptions of the of Model

The simulated projections by the model assumed that land cover dynamics are controlled primarily by two main
factors: palm oil price and total human population, and that land cover parameters are restricted to three main
types of land cover: palm oil, forest and other (non-palm-oil) agricultural lands. Similarly, population dynamics
(human or animal) were considerably oversimplified. For instance, human death rates were also assumed to be
equal for all age classes meaning that the chance to die young or old is similar. Malaysian population was divided
into rural and urban communities but was modeled as a whole and do not include migrations and interactions
between the former population segments. Life standard in the welfare parameter was calculated based on the unit
market price of palm oil such that lower prices induce higher life standards. Although this may intuitively hold
true given the significance of palm oil in Malaysias economy, not every segment of the population derives live-
lihood from palm oil revenues, nor do foreign exchange earnings from national palm oil export necessarily benefit
entire populations in an equitable or measurable way. Further, the labor force included all people working full time
in the palm oil industry between the ages of 15 and 65 regardless of excluding health occasional health problems,
handicaps or inter-sector labour mobilities. In addition it was assumed that all palm oil produced is exported and
that there will be no influences of adverse weather, technological changes, industrial actions or seasonal disrup-
tions to affect production targets. In reality, though, a substantial proportion of the commodity may be consumed
domestically, while poor weather (due to changing climate), worker strikes or invasive pests may contribute
substantially to missed production targets during some coming years. Therefore in overall, more stringent and
detailed parameter calibrations to address these limitations would significantly improve the models performance.

5. Conclusion
It is clear that the main modules selected for the simulations, as well as their component variables are interrelated
enough to affect each other when changes are imposed both in the short and the medium term. For future projec-
tions in particular, scenarios and variable interactions that reduced environmental damage would offer the best
chance for optimizing the palm oil economy while also minimizing forest loss and promoting citizen social wel-
fare.

Acknowledgements
We give great thanks to the University of Quebec at Trois-Rivieres for providing funding under the UQTR
Foundation Funds scheme for the modeling project during the 2014 Environmental Systems Analysis Modeling
Winter School; the University of Quebec at Montreal for arranging all logistics and facilities; Annick Gelinas
for great support through additional sessions on Modeling Language while in Montreal; and to my project advi-
sors Giliano and Jean-Claude Montana for the initial reviews of the manuscript.

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